The April Job Report (05/08/2020)

5/8/20 8:00 AM

Several important reports on the U.S. labor market were released this week. For example, total nonfarm employment in America plunged by 20,500,000 payrolls in April, according to data out this morning from the Bureau of Labor Statistics. That was the largest decline ever but not surprising since the efforts to fight the spread of the coronavirus basically brought the entire U.S. economy to a halt. For an additional perspective, if you totaled all of the layoffs that occurred during every recession since the 1960s, last month’s decline would still be bigger.

As for joblessness, the official unemployment rate (U-3) jumped to 14.7 percent in April, the highest post-WWII reading on record but perhaps still underestimating how many Americans were without work in April. This particular government measure, for instance, only counts people as unemployed if they are currently looking for work, but The CARES Act provided a significant boost to weekly unemployment benefits with the sole purpose of keeping laid off Americans from trying to find another job. Moral hazard arguments do not really apply here because the generous unemployment insurance is intended to make the shelter-in-place orders easier to adhere to, and benefits are set to revert back to normal once the crisis is over.

As for wage growth, average hourly earnings surged by 4.7 percent. How is this possible? Because the industries that have seen the biggest percentage drops in employment typically pay workers less per hour. Put simply, average wage metrics appear to be doing much better than other labor market gauges currently because it is mainly higher-earning Americans that have been able to keep their jobs during the lockdown. More financially vulnerable Americans being hit the hardest is a common occurrence during any recession, but the unprecedented nature of the COVID-19 shock has kicked these and other usual disruptions into overdrive.

The April payrolls loss in one month has roughly wiped out the last ten years’ worth of job creation, but the pain has been especially bad for small businesses. Indeed, separate ADP data showed that employment at firms with 1-49 workers fell to the lowest level on record in April. Small firms also experienced a larger month-over-month drop in percentage terms, i.e. -18.2 percent vs. -17.4 percent for medium-sized firms (50 to 499 employees) and -13.6 percent for large firms (500+ employees). The SBA’s Paycheck Protection Program (PPP) is intended to help these firms keep their workers on the payroll, but job losses were still very high in April because this program ran into what should have been avoidable logistical and funding hurdles.

Moreover, many small firms might have laid off workers before their PPP funds became available. This was most apparent in the leisure and hospitality sector, which has been responsible for roughly 40-50 percent of the SMB job losses to date but has only received around 10 percent of all the PPP loans. On the bright side, the SBA program is now fully up and running and money is being disbursed, so subsequent job reports could see a rebound in employment. This does not mean the lost jobs will quickly return but simply that conditions have improved enough to allow many Americans to start returning to work. Such a development is one of the reasons why we suggested last week that economic activity in this country has likely already bottomed.

Additional help will come from the lockdowns being slowly lifted across the country in May and June, and assuming that the COVID-19 outbreak does not come roaring back, the next few months of data will shed light on how soon the economy may be able to return to some level of normalcy.